Why are people obsessed with getting a pension

Tar.Aldarion

jimmy456 wrote: »

Say you max out your pension. (The principle is the same either way)

You get the following:

440k into your hand on retirement with a tax leakage of 60k.
Tax free growth on all investments
You get tax relief at the highest rate on the way in and pay tax potentially lower effective rate on the way out
Even better contribution rates for business owners.

Its a great deal really. There is no other saving scheme that comes close to it.

For a lot of jobs employers will match up to a certain amount too, for instance my job matches 10% so if I put in €500 let's say, that would have been €300 more in my hand but instead it is €1000 I have invested for decades, and that happens every month. That then can accumulate far more with compound interest and will be taxed less when I eventually get it, not that the interest hasn't already likely covered all that tax anyway.

Say that money grew by 5% for 30 years it's now 4.5k, pretty decent for a 300 quid investment. €54k for a €3600 investment over a year. It's still a great deal without an employer matching anything.


It's way worse to invest yourself here, you pay tax straight away meaning you earn less over time as you start with less money invested. You then pay tax on your profit when selling and if holding shares you also still need to pay tax on your investments every 8 years.

jimmy456

Course! Free money if your employer contributes as well.

When investing personally you pay tax on the full income and gains as they arise or are realized. With income tax rates at up to 55% and CGT at 33% this creates a big drag on your wealth creation.

Conversely in a pension you will effectively only pay 4/5 or 6% imputed distribution after retirement from age 61. Ie all the income and gains pre retirement are compounded for your benefit. This is huge from a wealth creation point of view. Then in retirement from age 61 the tax you pay on gains and income is limited to 4/5 or 6% of the fund value. You are generally winning in this scenario too.

how.gareth

So here comes the big question, I’m 43, never had a pension, am married and earn about €25k. Is there any point in me paying into a pension which would only be a small pittance I could afford?

Bigbagofcans

how.gareth wrote: »

So here comes the big question, I’m 43, never had a pension, am married and earn about €25k. Is there any point in me paying into a pension which would only be a small pittance I could afford?

Definitely start a pension now. We'll probably all be working until we're 68 so you still have 25 years of paying into a pension. Even if you paid 5%, does your employer match it?

BailMeOut

how.gareth wrote: »

So here comes the big question, I’m 43, never had a pension, am married and earn about €25k. Is there any point in me paying into a pension which would only be a small pittance I could afford?

YES! It is never too late. At 43 you have 25 years of pension growth ahead of you. Start today! Call Davy and you will be up and running in about an hour.

.......

bilbot79 wrote: »

I agree. Something like 2.5mil is luxury. I think 1.5 mil is optimum especially knowing the state pension eventually kicks in too.

This is the best calculator I find

https://www.newireland.ie/pension-calculator/

According to this article:
https://www.irishtimes.com/business/personal-finance/90-of-workers-not-on-track-with-their-pension-savings-1.3560462

90% of workers are NOT on track with their pensions in Ireland.

So I cannot imagine too many people are going to have 1.5 mill in the pot either. Maybe the older gold plated public sector pensions.

Most people I know dont even have a pension because they cant afford one.

jimmy456

how.gareth wrote: »

So here comes the big question, I’m 43, never had a pension, am married and earn about €25k. Is there any point in me paying into a pension which would only be a small pittance I could afford?

a small "pittance" can make all the difference especially with compounding. You should try and figure out what you want your retirement to look like first. ie how much of income do you need to replace in retirement.

Say this is 2/3rd of your income or €16,750.

The figure out where is this going to come from?

State Pension of €12,750
Balance of €4,000 from other sources. Say pension is the only other assets.

With 25 years of investing from now until retirement you could have this 4k of income for €150 contributions per month to a pension. Please note that these are very rough figures but illustrate the point.

It might seem pointless when you first think about pension but when you set the goal and break it down it doesn't seem as daunting. The best thing to do is to get a plan going and stick to it.

jimmy456

....... wrote: »

According to this article:
https://www.irishtimes.com/business/personal-finance/90-of-workers-not-on-track-with-their-pension-savings-1.3560462

90% of workers are NOT on track with their pensions in Ireland.

So I cannot imagine too many people are going to have 1.5 mill in the pot either. Maybe the older gold plated public sector pensions.

Most people I know dont even have a pension because they cant afford one.

People dont have a pension because they don't prioritize it. There's a great book called Rich Dad Poor Dad by Robert T. Kiyosaki that explains the concept of paying yourself first.

Basically each month you gets paid and the following happens:

Pay Revenue
Pay the Bank
Pay living costs, entertainment etc etc
Save the balance

We all know what happens here. The day before pay day there is nothing left to save. All that happens each month is you make your boss rich, revenue rich and the bank rich. The only person not getting rich is the person doing all the work!! Madness really.

Robert T. Kiyosaki shows that we should do the following:

Pay ourselves first - ie contribute to the pension or personal savings
Pay Revenue- may not be possible for PAYE
Pay Bank
Pay living costs, entertainment etc etc

We still have nothing left at the end of the month but in this case you are building savings etc.

Its a principle that everyone should try to adopt

.......

jimmy456 wrote: »

People dont have a pension because they don't priorities it.

For a lot of people, there is no way of prioritising saving or pension because to do so would mean leaving something else (like bills) short.

Bigbagofcans

....... wrote: »

For a lot of people, there is no way of prioritising saving or pension because to do so would mean leaving something else (like bills) short.

Can people not even put 5% into a pension? Just say someone on €20,000, that's only €20 a week.

.......

Bigbagofcans wrote: »

Can people not even put 5% into a pension? Just say someone on €20,000, that's only €20 a week.

Im sure some can, but others cant.

The hardest part (from what I am told by non pension owning friends) is that it is impossible to now START a pension because all their earnings are already accounted for.

I think once people are a bit along in life as regards financial responsibilities and have mortgages/rent/bills etc - its difficult to start losing 5% of their salary - at that point. Different if they have been putting it in for years since they started earning.

I already do have a pension but if you asked me now, today, to contribute 5% of my salary to something new Id be hard pressed to find it.

I think they should, but for some its difficult if not impossible.

bilbot79

....... wrote: »

According to this article:
https://www.irishtimes.com/business/personal-finance/90-of-workers-not-on-track-with-their-pension-savings-1.3560462

90% of workers are NOT on track with their pensions in Ireland.

So I cannot imagine too many people are going to have 1.5 mill in the pot either. Maybe the older gold plated public sector pensions.

Most people I know dont even have a pension because they cant afford one.

I'ma retire the minute my pension pot hits 1.5mil.

Mine is currently at 71k with 1300 going in a month in all. From next year t'will be 2300. I would say at around 60-61 I can quit work and go live in the sun. In the meantime I will eat healthy, not drink too much and exercise well inorder that I enjoy it all to the fullest.

Drumpot

I think for most people, their priorities determine if people can "afford" a pension or not. I include me in that, the difference is I don't lie to myself about my motives. I can come up with plenty of times when I prioritized spending on something now over saving on some capacity. Even recently I have prioritised house upgrades over throwing lump sums into my pension.

I probably wont ever buy a brand new car, unless I am rolling in the cash, all I need is a car that can get me from A-B. I don't drink or smoke so prob save a fortune on those sort of things and don't need a night out even once a month.

I meet very few people who are actually unable to afford to put money into a Pension but many of them have themselves convinced that they cant or shouldn't for numerous reasons. As I said, its usually their priorities, not their bank balance that determines this. There is nothing wrong with spending your money the way you want to spend it, but there are a lot of people that delude themselves as to the reason why they refuse to save.....

voldejoie

My retirement age at work (presuming I stay in the same job for the next 33 years...) is 60, so I'm very aware that I will need to have a substantial pot set aside to keep me afloat from then. Even just the fact that 60 is in my head as a retirement age means it's my aim to be in a comfortable enough position financially to make it work, so given that I only started a pension halfway through last year I'm throwing in 15% of my salary and benefiting from a 10% employer contribution, with a plan to increase my contributions in line with the cut off for tax relief in each decade (or as close to that as possible)! With the tax breaks involved it's like free money, and as people have previously mentioned gives a return that you wouldn't find on any other investment. Just over €1000 a month goes into my pension, at a net cost to me of ~€360 per month!

I'm very lucky to be on a decent salary with even better prospects in the future, so can afford to contribute while also maintaining an emergency fund of 4 months' salary and starting to save for a deposit. I've seen my parents struggle with money all of my life and know that I don't want to end up in a similar situation. I don't want to be worried about money as I get older, and having a safety net is great because it means if I do retire at 60 I have so many more fun options for how to spend that time.

AndrewJRenko

donkey balls wrote: »

It was private sector pensions that Noonan stole from, It finished a year or two ago from memory

By 'stole', you mean that he reclaimed a very small part of the very generous tax relief that you got on the way in, at a time when the country was verging on bankruptcy.

The Bishop Basher

AndrewJRenko wrote: »

By 'stole', you mean that he reclaimed a very small part of the very generous tax relief that you got on the way in, at a time when the country was verging on bankruptcy.

The government should never retrospectively tax people. Doing it with private pensions set a dangerous precedent.

how.gareth wrote: »

So here comes the big question, I’m 43, never had a pension, am married and earn about €25k. Is there any point in me paying into a pension which would only be a small pittance I could afford?

It’s never too late. You’d be amazed how quickly a pension adds up over the years. Starting now is better then starting next year or never starting at all. The peace of mind alone is worth it and if you’re emoloyer has a decent scheme it’s a complete no brainer. Just put in as much as you can afford and forget you ever had it.

Ace2007

AndrewJRenko wrote: »

By 'stole', you mean that he reclaimed a very small part of the very generous tax relief that you got on the way in, at a time when the country was verging on bankruptcy.

If he really thought the country was on verge of bankruptcy, he could have closed the public sector DB pensions to future accrual and have everyone contributing to a DC pension instead. This would lead to billions in savings each year.

But my doing this it would lead to the unions organising a mass walk out and virtual shut down of public sector, so instead he raided the private pension funds.

Pensions in this country are a ticking timebomb, but those making decision aren't affected and so they don't care. There are many articles from many professional bodies outlining such.

If likes the board of the HSE/health department all have gold plated health insurance policies, so do you really think they are going to sort of the issues in the health industry.

Doniekp

Big Words wrote: »

Vintage and sports cars was the way to go in the last bust. Will retire nicely now cashing in on these.

did you pick any thing nice?

AndrewJRenko

Rennaws wrote: »

The government should never retrospectively tax people.

Why not?

AndrewJRenko

Ace2007 wrote: »

If he really thought the country was on verge of bankruptcy, he could have closed the public sector DB pensions to future accrual and have everyone contributing to a DC pension instead. This would lead to billions in savings each year.

But my doing this it would lead to the unions organising a mass walk out and virtual shut down of public sector, so instead he raided the private pension funds.

Pensions in this country are a ticking timebomb, but those making decision aren't affected and so they don't care. There are many articles from many professional bodies outlining such.

If likes the board of the HSE/health department all have gold plated health insurance policies, so do you really think they are going to sort of the issues in the health industry.

The problem with shutting down the DB scheme is the contractual obligation to existing staff. He would have been breaking the law by unilaterally changing terms and conditions. He'd also have been faced with doubling of funding for a generation - funding the DB payments to existing pensioners AND the DC contributions for the new scheme simultaneously. This would probably have bankrupted the State.

I'm not sure I'm getting your point about the HSE board. Seeing as they are all external experts, mostly at the top of their private sector careers, yeah, they probably do have private health insurance. Are you saying that this should bar them from the board role?

.......

Drumpot wrote: »

I think for most people, their priorities determine if people can "afford" a pension or not.

Yes I dont disagree with this.

One odd scenario I came across recently was a staff member in my office who was basically a job hopper. Because he moved job so often (like once or even twice a year), he often got a job, didnt stay past the probation period, or knew he was leaving just after the probation period and was therefore not able to join the company pension scheme most of the time. The odd time he did - he was only a few months in it til he moved on. He reckoned that in 10 years he had only been in a company pension scheme for about 2 years so he was basically missing 8 years worth of employers contributions.

Some of this job hopping was not his own doing (working in companies that ended up going bust during the recession years). And some of it was due to him changing career and moving onto better things as he gained experience.

Ace2007

AndrewJRenko wrote: »

The problem with shutting down the DB scheme is the contractual obligation to existing staff. He would have been breaking the law by unilaterally changing terms and conditions. He'd also have been faced with doubling of funding for a generation - funding the DB payments to existing pensioners AND the DC contributions for the new scheme simultaneously. This would probably have bankrupted the State.

I'm not sure I'm getting your point about the HSE board. Seeing as they are all external experts, mostly at the top of their private sector careers, yeah, they probably do have private health insurance. Are you saying that this should bar them from the board role?

I didn't say close the DB scheme - I said close it to future accrual, or he could have set it up that instead of the CARE scheme that was introduce post 2013?, that it was just a DC scheme for future employees, but strangely he didn't do that - I wonder why?

The contributions to the DC scheme would be far less than the current notional contributions for the DB scheme. Given Ireland's birth rate's and that, they could afford to pay both for a generation or 2, however they will not be able to do it if they leave it for 20/30 years time.


My example of the HSE was proving that the system is broken, and a public system is never going to be truly fixed if those at the top aren't affected. Like pensions - if you are not in the public sector scheme, the chances are your pension will be inadequate at retirement for you, but although the government have a plan in place, they have missed numerous milestones and more than likely the automatic pension inclusion for all is going to be pushed out because no one in government is affected by it - so why would they care?

Lux23

I want to spend my last few years drunk or high. That's going to cost a few quid.

AndrewJRenko

Ace2007 wrote: »

I didn't say close the DB scheme - I said close it to future accrual, or he could have set it up that instead of the CARE scheme that was introduce post 2013?, that it was just a DC scheme for future employees, but strangely he didn't do that - I wonder why?

The contributions to the DC scheme would be far less than the current notional contributions for the DB scheme. Given Ireland's birth rate's and that, they could afford to pay both for a generation or 2, however they will not be able to do it if they leave it for 20/30 years time.


My example of the HSE was proving that the system is broken, and a public system is never going to be truly fixed if those at the top aren't affected. Like pensions - if you are not in the public sector scheme, the chances are your pension will be inadequate at retirement for you, but although the government have a plan in place, they have missed numerous milestones and more than likely the automatic pension inclusion for all is going to be pushed out because no one in government is affected by it - so why would they care?

What CARE scheme?

I don't think you understand how public sector pensions work. There are no notional contributions to the current DB schemes. Zilch. Zero. The money deducted from current staff as 'pension contributions' and pension related deductions go straight into general taxation.

So any contributions to a DC scheme would be entirety new expenditure - billions of new expenditure. Where do you think this money will come from?

AndrewJRenko

Ace2007 wrote: »

My example of the HSE was proving that the system is broken, and a public system is never going to be truly fixed if those at the top aren't affected. Like pensions - if you are not in the public sector scheme, the chances are your pension will be inadequate at retirement for you, but although the government have a plan in place, they have missed numerous milestones and more than likely the automatic pension inclusion for all is going to be pushed out because no one in government is affected by it - so why would they care?

So what's your solution? That HSE board members can't have health insurance? And that those working on homelessness can't own a house? And those working on public transport can't own a car?

BrokenArrows

I cant image how someone can even start a thread like this, but anyway ill point out the obvious.

1. Average human life expectancy is very long. If you're 30 now you will very likely live into your late 80's if not longer.

2. Just because you are alive it doesn't mean you will be able to work. My retirement age is 68 in the UK, but im a software engineer and there is no way my mind will up to the task of developing whatever crazy **** they have in 35 years time, never mind those who work in physical jobs.

3. So when you are say 68 and cant work anymore how do you expect to eat, live, exist? Do you expect the state pension to pay for rent, food, heating, clothing. No chance.

4. Do you want to spend the 20 years where you are at your most vulnerable having to worry about spending a few euro to keep your house warm. Or having to constantly count pennies to feed yourself.

In summary, dont be a short sighted fool. Put 5% of your salary at least into a private pension starting now. Even on a low salary you will have a nice bit of cash to have when you retire and you will be glad that you dont have to fully rely on government handouts.

Geuze

how.gareth wrote: »

So here comes the big question, I’m 43, never had a pension, am married and earn about €25k. Is there any point in me paying into a pension which would only be a small pittance I could afford?

I would make a few points:

(1) your main focus should be on increasing your earnings. If you are doing full-time hours, 25k is a low wage. Average earnings in Ireland, incl. overtime and bonuses are 46k.

(2) Auto-enrolment is planned to happen in 2021 or 2022, so most workers without pensions will be automatically enrolled into a work pension then.

Ace2007

AndrewJRenko wrote: »

What CARE scheme?

I don't think you understand how public sector pensions work. There are no notional contributions to the current DB schemes. Zilch. Zero. The money deducted from current staff as 'pension contributions' and pension related deductions go straight into general taxation.

So any contributions to a DC scheme would be entirety new expenditure - billions of new expenditure. Where do you think this money will come from?

The "new" Single public sector Pension scheme which was set up for new members of public sector post 2013. It is a CARE scheme.

I don't think you saw the word notional. I am well aware that they public sector pensions are unfunded, but equally am aware the values are placed on the liabilities and the government know how much the pension are costing them each year, the money in turn is taken from the tax receipts that you and I and everyone else pays.

For the DC Scheme, the government would pay a % in contribution as would the employee, just like in private sector scenarios, and the employee is in control of how they want the funds invested themselves. The cost of the DC scheme and the closed DB scheme, would be higher in the initial years, but the overall cost would significantly reduce in the future. The initial cost would depend on the design of the new DC scheme etc. Where would the extra money come from you ask - there are many ways the government could do this - for example increasing corporation tax by 1.5%, would be a extra billion for instance. They could reduce USC and introduce a pension levy tax for everyone.

Like I said, there are many ways for it to be done, but if it's not in the interest of those at the top, or if those at the top are negatively affected, they will be unlikely to do it.

downtheroad

....... wrote: »

Yes I dont disagree with this.

One odd scenario I came across recently was a staff member in my office who was basically a job hopper. Because he moved job so often (like once or even twice a year), he often got a job, didnt stay past the probation period, or knew he was leaving just after the probation period and was therefore not able to join the company pension scheme most of the time. The odd time he did - he was only a few months in it til he moved on. He reckoned that in 10 years he had only been in a company pension scheme for about 2 years so he was basically missing 8 years worth of employers contributions.

Some of this job hopping was not his own doing (working in companies that ended up going bust during the recession years). And some of it was due to him changing career and moving onto better things as he gained experience.

Auto enrolment being brought in soon will allow this person to accrue a pension. Australia have it set up quite well, the salary package includes a pension contribution that is mandatory. Salary packages there are described as X plus Super, meaning you get pension contributions from Day 1 of any employment.

You can also very easily move your contributions to another fund if you change employer, by just providing the equivalent of a PPS number to the new employer's pension provider.

I hope that the system we bring into Ireland in 2021 will be modelled on the Australian system.

Teddy Daniels

Heres Johnny wrote: »

1 - I want to retire early, at about 60
2 - I don't care what age I am, I don't want to be on 33% of the average industrial wage. Or about 15% of my current income at the moment.

Planning is the only way I can avoid this.

Well on your wages (€63,000) you can afford to plan